The McDonald’s ‘Beef Fries’ Controversy

Case Study no.5

By: Harish Bharti

Leonar, John Lenard L.

Cabuyao, Sheila Mae R.

Leonar, Jhoana L.

Puchero, Mhellie Althea P.

January 2020
 Figure no. 1

The McDonald’s ‘Beef Fries’ Controversy

In May 2001, a class action lawsuit was filed against the world's largest fast-food
chain McDonald's, in Seattle, US. The lawsuit alleged that the company had, for over a
decade, duped vegetarian customers into eating French fries that contained beef
extracts. The lawsuit followed a spate of media reports detailing how the French fries
served at McDonald's were falsely promoted as being '100% vegetarian.' Although
McDonald's initially declined to comment on the issue, the company issued a
'conditional apology,' admitting to using beef flavouring in the fries. The furor over the
matter seemed to be settling down, when to McDonald's horror, some of its restaurants
in India were vandalized. Activists of Hindu fundamentalist groups- the Shiv Sena, the
Vishwa Hindu Parishad (VHP) and the Bajrang Dal, staged a demonstration in front of
the McDonald's head office in Delhi protesting the alleged use of beef flavoring They
submitted memorandum a to the Prime Minister, demanding the closure of all
McDonald's outlets in the country.

Activists also staged protests in front of McDonald's restaurants in south Mumbai

and Thane. Mobs ransacked the outlet at Thane, broke the glass panes and smeared
the McDonald's mascot Ronald with cow dung.

About 30 people were arrested and later let off on bail. Company officials
estimated the loss to the outlet at Rs 2 million. Officials at McDonald's India quickly
announced that the vegetarian products served in India did not have any non-vegetarian
content.

However, despite this reassurance, the anti-McDonald's wave refused to die

down. Meanwhile, more cases were being filed against McDonald's - this time in
California, US and Canada. It seemed certain that the company would have to shell out
millions of dollars to settle the class action lawsuit representing the 1 million US based
Hindus and 15 million other vegetarians.

McDonald's was started as a drive-in restaurant by two brothers, Richard and

Maurice McDonald in California, US in the year 1937. The business, which was
generating $ 200,000 per annum in the 1940s, got a further boost with the emergence
of a revolutionary new concept called "self-service." The brothers designed their kitchen
for mass production with assembly line procedures. Prices were kept low.

Speed, service and cleanliness became the critical success factors of the
business. By mid-1950s, the restaurant's revenues reached $ 350,000. As word of their
success spread, franchisees started showing interest. However, the franchising system
failed because the McDonald brothers observed very transparent business practices. As
a consequence, they encouraged imitators who copied their business practices and
emerged as competitors. The franchisees also did not maintain the same standards for
cleanliness, customer service and product uniformity. At this point, Ray Kroc (Kroc), an
exclusive distributor for milkshake machines expressed interest in the McDonald
brothers' business. Kroc finalized a deal with the McDonald brothers in 1954.

He established a franchising company, the McDonald System Inc. and appointed

franchisees. In 1961, he bought out the McDonald brothers' share for $2.7 million, and
changed the name of the company to McDonald's Corporation. In 1965, McDonald's
went public.

By the end of the 1960s, Kroc had established over 400 franchising outlets.
McDonald's began leasing/buying potential store sites and then subleased them to
franchisees initially at a 20% mark-up and later at a 40% mark-up. To execute this, Kroc
set up the Franchise Realty Corporation. The real estate operations improved
McDonald's profitability. By the end of the 1970s, McDonald's had over 5000
restaurants with sales exceeding $3 billion. However, in the early 1990s, McDonald's
was facing problems due to changing customer preferences and increasing competition.
Customers were becoming increasingly health conscious and they wanted to avoid red
meat and fried food. They also preferred to eat at other fast food joints that offered
discounts. The courtroom battle had entered the 11th month when McDonald's
announced that it would issue a new apology and pay $ 10 million to vegetarians and
religious groups in a proposed settlement of all the lawsuits in March 2002.
Case Questions:

1. What particular conflict in the belief system did McDonald violate? Explain your
answer.

Throughout the world, more than forty million people visit McDonald’s
each day. Half of the customers visit US establishments. Despite the fact that
McDonald’s is praised worldwide for its CSR policy, the reputation of the
company came under pressure in May 2001 due to allegations of socially
unaccountable conduct. The company became embroiled in a debacle
surrounding its French fries. To the great displeasure of vegetarians and Hindus,
it was revealed that US French fries contained a flavour enhancer made of beef
extract. In addition, according to Bharti, McDonald’s actions were in breach of the
Washington Consumer Protection Act and have caused “emotional stress” in
vegetarian and Hindu consumers. The fast food chain, he argued, had
deliberately deceived vegetarians and Hindus. Moreover, since McDonald’s had
maintained for ten years that the ingredients in its fries were meat-free,
consumers had lost all confidence in the corporation. According to the pressure
groups, the company had manipulated the facts.

2. How did the Hindu fundamentalist groups react? Enumerate them.

The Hindu interest group Shiv Sena held a demonstration in the Indian
capital, New Delhi and the destruction of Ronald McDonald dolls and restaurants
in India, England and on the Fiji islands followed. Furthermore, hundreds of
articles expressing outrage at McDonald’s conduct were posted on Internet sites.
Slowly but surely, the company came to show dishonest marketing practices
which created much suspicion and distrust among (potential) consumers. Civil
society organisations in India demanded that their government shut down all 28
McDonald’s restaurants. The Board of McDonald’s attempted to appease the
Indian population by declaring in national newspapers that all products, including
fries that are sold in Indian McDonald’s restaurants are vegetarian and have
always been. Activists also staged protests in front of McDonald's restaurants in
south Mumbai and Thane. Mobs ransacked the outlet at Thane, broke the glass
panes and smeared the McDonald's mascot Ronald with cow dung.
3. Do you agree with the actions taken by McDonald just to win the battle over
the Hindu belief?

Ethically speaking not really, because although the issue is resolved

insofar it can be assumed that vegetarians and Hindus will avoid McDonald’s
(French fries) in the US. With respect to transparency on labels, FDA legislation
has remained unchanged. While in most countries, the misunderstanding was
cleared up. In its core markets, McDonald’s is not willing to adjust to the
demands of specific consumer groups. This shows that they may give them the
clear and transparent information but there will be no change in the preparation
method. And when VLAN has insisted that the FDA change US legislation on
public disclosure of product ingredients, the FDA rejected the demand. According
to the founder of the VLAN, James Pizzirusso, ‘McDonald’s said they are
complying with the law in terms of revealing their ingredients, but they should go
beyond the law and value their consumers and not just the profit they can get in
the business.